AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1373
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....3. The learned Commissioner of Income Tax (Appeals) erred in holding that university employees were to be considered as government employees and were therefore eligible for exemptions under sections 10(10)(i), 10(10A)(i) and 10(AA)(i). 4. The learned Commissioner of Income Tax (Appeals) overlooked that employees of a university are not holders of civil posts and are therefore not government employees. 5. The learned CIT(Appeals) erred in treating University as part of "State" even though the Income Tax Act in several sections such as section 192(2A) and section 10(10C) clearly distinguishes a university from government. 6. The Learned CIT(Appeals) overlooked that employees of Universities are neither recruited by the State PSC nor paid from the consolidated fund of the State Government. They are employees of the University and not of the Government. 7. The Learned CIT(Appeals) overlooked that a University does not perform any sovereign function of the State; rather a university is a product of a statue of the State. 8. The Learned CIT(Appeals) overlooked that definitions of 'government1 such as those available in General Clauses Act does not include a university as pa....
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....ission Act, (3 of 1956) ; or . (vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or (viia) any State Government; or (viib) the Central Government; or (viic) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette sppecify in this behalf; or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf; or [on his] [voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees: Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribe....
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....t attracted. Therefore, the Assessing Officer reiterated that the assessee cannot be treated as part of Government and the employees of Mahatma Gandhi University do not fall under the category of Government Employees and as such the exemptions available to the Government employees will not be applicable to the University employees. Hence, TDS is to be made on taxable portion of the payment of DCRG, Commutation of pension & leave salary. The Assessing Officer passed the order u/s. 201(1) and 201(1A) of the Act raising the demand of Rs. 59,65,182/-. 4. On appeal, the CIT(A) held that the assessee is to be treated as "State" for the purpose of application of TDS provisions by relying on the decision of the ITAT, Delhi in the case of Ram Kanwar Rana in ITA No.1307/Del/2016 dated 16/06/2016 wherein it was held as under: 4. I have heard the rival submissions and perused the relevant material on record. The controversy in this appeal can be viewed separately in respect of receipt of gratuity amount and leave encashment. In so far as the addition on account of gratuity received by the assessee amounting to Rs. 6,50,000/- is concerned, it is found that the case of the assessee is that th....
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....u contraire, if a case falls under sub-clause (iii) of section 10(10), then, the exemption is limited to the amount as the Central Government may notify in official gazette. It is an accepted position that the Notification u/s 10(10)(iii) issued on 24.5.2010 raised the ceiling of exemption from Rs. 3,50,000/- to Rs. 10 lac. Since the original amount was received by the assessee during the currency of an earlier year on his retirement, the exemption limit prevalent at that time at Rs. 3,50,000/- was used by the assessee. It is nobody's case that the extended limit of exemption can be applied to the assessee, because of his retirement which took place much before the cut-off date. To be more specific, the question is as to whether the extant case falls under clause (i) or clause (iii) of section 10(10). If a case does not fall under clause (i), it will automatically go to clause (iii). On a specific query from the Bench, the ld. AR submitted that the case of the assessee should be considered under sub-clause (i) of section 10(10) as a 'holder of civil post under a State.' In order to construe any person as a holder of civil post under a State, two requirements must be fulfilled viz.,....
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....tates either local or other authorities within the territory of India or under the control of the Government of India.' The expression 'other authorities' has been interpreted in Umesh v. Singh A 1967 Pat. 3(9) F.B. as including: 'a Board, a University, the Chief Justice of a High Court, having the power to issue rules, bylaws or regulations having the force of law.' The above discussion manifests that CCSU is covered within the meaning of 'State'. 8. As the assessee is found to be an employee holding a civil post under a State, in my considered opinion, the provisions of section 10(10)(i) are fully attracted in this case entitling him to exemption for the amount under consideration. Once a case falls under clause (i) of section 10(10), the same cannot be brought within the purview of clause (iii) of section 10(10). I, therefore, hold that the assessee is entitled to exemption u/s 10(10)(i) in respect of gratuity amount received in total upto Rs. 10 lac, which covers a sum of Rs. 6,50,000/- received during the year. Overturning the impugned order on this score, I allow exemption u/s 10(10)(i) to the arrears of gratuity received by the assessee at Rs. 6,50,000/- during the insta....
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....nd the Governor of Kerala is the Chancellor of the University, who shall appoint the Vice Chancellor of the University. It was submitted that the University was created by the State Government to discharge one of its sovereign function of imparting higher education in the State. The Ld. AR referred to the preamble to the MG University Act, 1985, which states as follows: "WHEREAS it is considered necessary to establish a new teaching and affiliating University in the State to provide for the urgent development of higher education in the areas comprised in the Kottayam, Ernakulam and Idukki revenue districts, the Kuttanad taluk of the Alleppey revenue district and the Kozhencherry, Mallappally, Thiruvalla and Ranni taluks of the Pathanamthitta revenue district of the State;". 6.1 Further, the Ld. AR submitted that the university was established by the government as an autonomous institution, (like RBI, SEBI, ISRO, C&AG, IRDA. TRAI etc.) to deliver the services that the government had approved as part of its policy frame work. It was submitted that it is a government organization and the government frames the policy and autonomous institutions implement it. It was submitted that th....
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....39;payer' and 'payee' i.e. the government and the employee. It was submitted that the state government retains complete and direct control over the expenditure of the university. The salary, pension and retirement benefits were directly credited to the account of the employees by the Treasury Officer. 6.4 The Ld. AR referred to Article 12 of the Constitution of India which reads as follows: "Definition In this part unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India". The definition paraphrased is as under: a) The Government and Parliament of India; b) The Government and the Legislature of each of the States; c) All local and other authorities within the territory of India; and d) All local and other authorities under the control of the Government of India. It was submitted that the assessee had been allowed exemption on these payments while estimating the income of the employees for all the prior years which were accepted by the department.....
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....he Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. The University is formed under a State Act and the revenue nd capital requirements of the University is allotted from the State Budget by the State Government as planned and unplanned expenditure. b) Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality. The creation and operation of the University is entirely based on a statute/Act that has been enacted by the State Government. The Financial and Administrative control over the University is with the State Government. c) Whether the Corporation enjoys monopoly status which is State conferred or State protected. Yes. The University enjoys monopoly status conferred by the State with respect to collegiate education and powers conferred on the university with respect to functions to be performed by it is exclusive and not available with any other agency or institution. d) If the functions of the corporation are of public importance and closely related to governmental functions. It would be a relevant factor in classifying t....
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....e held to be a State irrespective of whether the functions of that authority are sovereign functions or non-sovereign functions. 6.8 It was submitted that the department had taken a ground that since "state government" and "university" are shown separately in section 10(10C) of the IT Act and section 192(2A) of the IT Act, the words University and state government are different and not same which has no merits for the following reasons: 1. In section 10(10C) what is contemplated is all employees of universities established under a state act are eligible for exemption even if such universities are not substantially funded by the Government of Kerala. Eg. Kerala University of Health Sciences is a university established under a State Act but not substantially funded by the Govt. of Kerala. Hence these are shown separately. 2. Under section 192(2A) of the Income Tax Act, a similar explanation is added as under Section 10(10C)of the Income Tax Act. 6.9 Notwithstanding the above, it was submitted that these employees are the employees of the State Government and not of the M. G. University for the reason that the salary is paid by the Kerala Government. Reliance was placed on the d....
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....icable or not. For this, two requirements must be fulfilled as per section 10(10) i.e., first that the employee should be hold a civil post and second such civil post must be under the State Government. The assessee herein Mahatma Gandhi University was formed as per the Mahatma Gandhi University Act, 1985 passed by the Kerala Legislature and hence, it is a statutory body formed by an Act of the State Legislature. As per the Act and Statutes, the Government of Kerala exercises direct control over the financial and administrative matters of the university and the Governor of Kerala is the Chancellor of the University, who shall appoint the Vice Chancellor of the University. The University was created by the State Government to discharge one of its sovereign function of imparting higher education in the State. 7.1 The preamble to the MG University Act, 1985 states as follows: "WHEREAS it is considered necessary to establish a new teaching and affiliating University in the State to provide for the urgent development of higher education in the areas comprised in the Kottayam, Ernakulam and Idukki revenue districts, the Kuttanad taluk of the Alleppey revenue district and the Kozhenche....
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....rnment and the grant for payment of salary and retirement benefits are provided by the Legislature through the budget of the State. The amount is specifically provided under the head 'salaries' in the state budget which was placed on record. Thus, there exists an employer employee relationship between the 'payer' and 'payee' i.e. the government and the employee. The state government retains complete and direct control over the expenditure of the university. The salary, pension and retirement benefits were directly credited to the account of the employees by the Treasury Officer. 7.6 Article 12 of the Constitution of India reads as follows: "Definition In this part unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India". The definition paraphrased is as under: a) The Government and Parliament of India; b) The Government and the Legislature of each of the States; c) All local and other authorities within the territory of India; and d) A....
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....n refund were due) and did not have any income tax consultant or a division on a regular basis. 3. For the Assessment years 2016-17 & 2017-18, the ITO (TDS) initiated proceedings u/s.201 and 201(1A) of the Income tax Act for the alleged short deduction of tax at source, vide orders dt.31/08/2017 and 31/01/2018 4. On appeal before the CIT(A), the order of the ITO (TDS) was reversed and the demand raised was cancelled, vide orders dt. 03-09-2018. 5. Department filed appeals before the Bench against the orders of the CIT(A), which are posted for hearing before the Bench on 27-02-2019. 6. The Petitioner was under the bonafide belief that no action is required on receipt of the notice and had engaged M/s. Varma & Varma, Chartered Accountants, Kochi, to enter appearance before the Bench. 7. The Petitioner is now advised that a Cross Objection u/s. 253(4) of the Income tax Act ought to have been filed within 30 days of the receipt of the notice. 8. The Petitioner had received the notice of filing the appeal on 04/01/2019 and hence the Cross Objection ought to have been filed on 03/02/2019. Consequently there is a delay of 24 days. 9. The delay was caused only due to ignora....
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....he assessee is also under the bona fide belief that its employees are State Government employees and has been deducting tax accordingly u/s. 192 and filing its TDS return for all the past years. 10.2 The Ld. AR submitted that the primary liability of the payee to pay tax remains and Section 191 confirms this. It was submitted that in a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. Hence, it was submitted that no tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bonafide estimate of salary taxable in the hands of the employee is made by the employer and the tax assessment of the employee has become invalid. 10.3 The Ld. AR placed reliance on the following decisions of the Tribunal wherein the appellate authorities had taken a view that if tax is deducted based on a bonafide estimate or if there is no observation that the estimate is not honest or fair, the deductor cannot be held to be assessee in default u/s. 201(1). It was also held that deduction of tax at source by an employer is always a tentative deduction of income-tax subject to regular....
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....for the purpose of Secc.192 of the Act, was explained in a decision of ITAT Bangalore in the case of ACIT Vs. lnfosys BPO Ltd. 150 ITD 132/53 CCH 602 (Bang) in the following manner: "26. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec. 192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs. 15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec. 10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assesses ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec. 17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be d....